Data centres are the talk of the town following the news of Blackstone’s recent acquisition of AirTrunk, which develops and operates large-scale data centre campuses across the Asia-Pacific region. 

With its bid partner, the Canada Pension Plan Investment Board, Blackstone are buying AirTrunk, which is headquartered in Sydney and has 11 facilities in Australia and across Asia, from Macquarie Asset Management. 

The sale for a reported $24 billion is reportedly the fifth-largest corporate transaction in Australia ever and the biggest data centre deal globally.

Growing investor interest in data centres

In recent years we have seen a shift in the property market locally whereby an increasing number of major players, including traditional industrial investors, are looking to include data centres in their industrial portfolios in Australia due to its enormous growth potential. 

Data centres have been on the radar for more than a decade, but they have been booming over the past few years driven by a massive increase in demand due in large part to the rise of artificial intelligence (AI). 

Knight Frank’s The Wealth Report 2024, released earlier this year, predicted one of the five big themes in property over 2024 would be AI investment driving real estate requirements.

According to the report, this trend would result in a surge in demand for specific property categories, one of which was data centres, especially as proximity to cost-effective energy sources becomes increasingly critical. 

The Attitudes Survey from The Wealth Report 2024 also found that data centres were in the top five commercial property sectors in which investors were expected to buy this year, with respondents indicating that 9% of their clients would likely target the sector. 

Certainly, data centres have been one of the sectors that have been more resilient to the economic uncertainty we have seen over the past few years, with investors more confident in this sector.

They have been increasingly diversifying into this space and taking opportunities in this emerging industry due to its major growth potential. 

In Australia, the market for data centres is less mature than in the US, the UK and some countries in Asia, but it is rapidly growing, and the Blackstone deal has put it on the global stage. 

Sydney was the first city in which data centres established a major presence as it is where many large companies are based, followed by Melbourne, and now Perth is gaining more traction. We expect to continue to see every Australian city experience growth in data centres in the coming years.

What industrial properties are sought after for data centres? 

Data centre developers and occupiers purchasing their sites to occupy are usually willing to pay a premium over other buyers to secure their preferred sites since the acquisition is considered a long-term play. 

Costs associated with land acquisition are far less as a percentage for data centres when compared to typical commercial developments. 
Given the long-term nature of these developments, the land component is also very elastic to them. 

However, data centre developers will only pay a premium if the site suits their particular requirements, with proximity to an efficient power source the biggest one. The key is having a power station nearby that has the capacity for the data centre or will have the capacity to scale up in the future. 
Proximity to water is also a consideration for data centres. 

Data centre occupiers are also looking for locations – in Sydney, for example, they generally want to be within the cluster of data centres situated within Western Sydney, predominantly in Eastern Creek, while other hubs include Macquarie Park and South Sydney. 

The size of land data centre developers are looking for is growing – it used to be around one hectare, but now it’s up to around five hectares so they can build bigger buildings to cater for the strong demand, especially due to the rise of AI. 

We’re likely to see more data centres in multi-level industrial facilities, in infill locations closer to major cities, over the next few years. I expect we will see many major property owners in this space lobbying governments to increase densities on existing industrial land holdings so they can build up in the airspace and cater for data centre users, as opposed to traditional logistics users. 

The benefit of data centres being occupiers in industrial infill sites is that they have less impact on the local area – for example, in terms of traffic, with no trucks coming and going and creating noise issues. They are very passive, high-spec buildings, of high value.

Watch this space 

With the rapid growth in the data centre space, we expect to see a lot of activity over the coming 12 months. 

Related readings

What are the latest trends in Australia’s industrial market? - Knight Frank

Spotlight on Sydney’s industrial precincts - Knight Frank